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Account reconciliation within the account: For example in the case of Prepaid Expenses account. Here the account acts as a holder on the Balance Sheet for the items which have been prepaid and is transferred once the payment is completed. Here the sources of entries are two – one, when the expense is raised in the appropriate period and the second, when the expense is actually paid. If it is paid within the appropriate period it is a wash in the Prepaid Expense Account, else it is carried into the Balance Sheet accordingly. This method requires amortization of amounts which are posted into the account leaving the balance as yet unallocated. This method can be used in the following cases

Monthly recurring expenses

Annual payments

Advance payments

Account reconciliation with an external account: This can be further divided into two sub types.

Bank Accounts: The Company’s accounts should be adjusted to reflect the external items in the Bank Accounts. The entries are made in the company’s books in the form of deposits and payments but there can be items present in the bank statement which are not yet processed in the general ledger. The reconciliation will show two types of differences:

Outstanding items viz., deposits and payments present in the general ledger buy not yet reflected in the bank statement. These will be automatically adjusted when the check is presented.

Items processed by the bank buy not yet processed through the general ledger. This needs to be entered into the ledger else it will cause permanent difference between both the accounts.

Other external accounts: Theses are usually cases where the one of the following are involved

Medical scheme providers

Insurance carrier accounts

Accounts payable & receivable

401K accounts.

With another account: One good example for this is in case of inter-company accounts. The inter-company accounts need constant reconciliation so as to ensure that they are in sync. There might be outstandings on both sides which will result in permanent differences if the opposite side is not adjusted. Reconciliations require a list of initiated transactions which should be traced to the opposite side. Having two different accounts, one for transactions that the company initiates and the other for the transactions that the company responds to will simplify the reconciliation process.

Control account: The General Ledger control account balance is reconciled with the total of the individual accounts in the sub-ledger.